Blended finance – the strategic mobilisation of public and private capital – holds enormous potential to unlock billions for global sustainability projects. However, the market’s growth has been slow with just over $213bn in capital mobilised in the past 15 years, paling in comparison to the trillions needed to protect nature and address the climate crisis.

As the World Economic Forum’s Global Risks Report 2025 highlights, environmental risks such as extreme weather events, biodiversity loss and ecosystem collapse are dominating the 10-year horizon, making innovative financing mechanisms indispensable. For instance, commercial and development banks have both identified blended finance solutions at scale as essential for securing a nature-positive future by 2030.

Positive signs

There is cause for optimism. Recent developments on the philanthropic front, from official development assistance as well as multilateral development banks, are providing momentum in the blended finance market.

Philanthropic organisations are taking a more active role in blended finance structures, offering catalytic capital to de-risk investments and attract private investors. Between 2017 and 2022, philanthropic institutions contributed approximately 10% of concessional capital to climate-focused blended finance initiatives. Such funds are often deployed to address early-stage risks and support feasibility studies and pilot programmes that pave the way for larger investments by improving risk profiles and profitability.

Blended finance is evolving rapidly, with new classifications of what counts as ODA reshaping the landscape of blended finance. Private sector instruments, including loans, equity investments, guarantees and mezzanine financing, are driving this transformation. These instruments, offered to private enterprises operating in developing countries, aim to enhance the effectiveness of public funds by leveraging them to mobilise private capital. This approach is vital to advancing sustainable development goals and creating scalable, market-driven solutions.

Policy frameworks aligned with the blended finance guidance from the Organisation of Economic Co-operation and Development’s Development Assistance Committee can also encourage using guarantees, equity investments and loans to attract private investors. These instruments are particularly effective in mitigating risks in developing markets, where private sector involvement is often limited due to perceived uncertainties. Also, MDBs are increasingly using guarantees, first-loss capital and other risk-sharing tools to attract private capital, particularly for projects in high-risk or underserved markets.

Scaling blended finance

However, scaling blended finance to levels that transition most companies and portfolios towards net-zero and nature-positive outcomes requires a step change in effort. First, more attention needs to be paid to ‘deal origination’. The Dutch Fund for Climate and Development offers a strong model here. The DFCD is a blended finance initiative between banks, investors and non-governmental organisations focused on originating and financing high-impact projects in emerging markets that contribute to climate mitigation, adaptation and the transition to a nature-positive future. By de-risking investments and providing catalytic funding, the DFCD helps mobilise private capital for projects that align with global sustainability goals. Since its inception in 2018, the fund has mobilised over €1.3bn private capital in emerging markets.

Maximising the potential of blended finance also requires that MDBs embrace reform. This means setting ambitious targets that deliver on the Kunming-Montreal Global Biodiversity Framework and the 2015 Paris agreement and follow clear operational principles. The World Bank’s Evolution Roadmap is a promising start, but it needs to move further and faster. At the same time, MDBs must respond to the recommendations outlined in independent reviews such as the MDB Capital Adequacy Framework and the G20 Independent Experts Group Triple Agenda. In parallel, national development banks also have untapped opportunities to scale blended finance, improve processes, crowd in local investors and break down impact theme silos.

Together, development banks can create the enabling conditions that will accelerate the mobilisation of private investment in the global South, helping partner governments develop public policies that incentivise commercial banks to participate in blended finance transactions.

Central banks also have an important role to play. In a 2023 report, the Network for Greening the Financial System set out how blended finance can unlock the capital necessary for sustainable development and climate action, particularly in regions that are most vulnerable to environmental risks. In the same year, it launched the NGFS Blended Finance Initiative to identify key success factors for growing the blended finance ecosystem.

A WWF and United Nations Environment Programme Finance Initiative report mapping the policy landscape of nature-related regulatory developments in more than 50 jurisdictions shows that central banks and supervisors in at least 29 of these jurisdictions – totalling more than €75tn of assets – have started to consider nature risk in their prudential frameworks, in particular in the global South. Blended finance can help financial institutions respond to these regulatory signals by providing resources to invest in sustainable projects that comply with evolving standards.

So what next?

While recent trends suggest encouraging developments in the blended finance market, much work remains. Philanthropic organisations and evolving ODA instruments are playing a more proactive role in de-risking investments and mobilising private capital. MDBs are deploying innovative tools to attract investors, and central banks are beginning to incorporate nature-related risks into their regulatory frameworks.

However, significant efforts are still needed to unlock the full potential of blended finance. Prioritising deal origination, reforming MDB operations and strengthening regulations that require financial institutions to disclose their exposure to environmental risks and outline strategies to mitigate these risks are all essential next steps. Aligning these actions with ambitious global goals like the GBF and the Paris agreement will make blended finance a truly transformative force for a net-zero, nature-positive future.